Refinance Calculator

Payment = B × r ÷ (1 − (1 + r)^−n) for each loan, where B is the balance, r the monthly rate and n the number of months. Monthly saving = old payment − new payment. Break-even month = the closing costs divided by the monthly saving, rounded up. Net saving = interest over the old term − interest over the new term − closing costs.

B

The balance being refinanced, which is what the old loan has to be paid off with

currentRate

The rate on the loan you have now, and the months left on it

newRate

The rate the new loan is offered at, and the term it is offered over

closingCosts

Everything it costs to arrange the new loan: application, appraisal, title, origination, recording

breakEvenMonths

How many monthly savings it takes to pay back the closing costs

lifetimeInterestSaved

Interest over the old loan's remaining term minus interest over the new loan's term

Use it as soon as a refinance offer looks attractive on the payment alone, which is how most offers are presented. Read the break-even month against how long you expect to keep the loan — if you may move or sell in three years, a break-even in month 112 — which is what the half-point case on this page produces — means the refinance loses money, because the costs are paid at the start while the saving arrives later. Then read the monthly saving and the lifetime interest together, and be suspicious when they point in opposite directions. Taking the lower rate over a longer term raises the monthly saving and cuts what you actually save; on the default loan a 360-month term turns a 71,014.97 saving into 14,648.99 while making the monthly figure look 47% better. The question a refinance has to answer is not whether the payment falls, but whether the total cost of the debt falls by more than the costs of arranging it.

1. 250,000 at 7.5%, refinanced to 6% over the same 300 months

   1. Old loan: 250,000 at 7.5% ÷ 12 = 0.625% a month over 300 months gives a payment of 1,847.48
   2. New loan: 250,000 at 6% ÷ 12 = 0.5% a month over 300 months gives a payment of 1,610.75
   3. Monthly saving: 1,847.48 − 1,610.75 = 236.73
   4. Break-even: 6,000 ÷ 236.73 = 25.35 months, rounded up to 26
   5. Interest over the old term: 304,242.36; over the new term: 233,227.39; saved: 71,014.97
   6. Net of the closing costs: 71,014.97 − 6,000 = 65,014.97

   The default case and the clean version of the decision: a 1.5-point drop over the same term lowers the payment, pays back its own costs inside 26 months, and removes 71,014.97 of interest. Keeping the term the same is what makes this the honest comparison — the new loan ends on the same date as the old one, so nothing has been stretched.

2. The same refinance over 360 months instead

   1. The old loan is unchanged: 1,847.48 a month for the 300 months left
   2. New loan: 250,000 at 0.5% a month over 360 months gives a payment of 1,498.88
   3. Monthly saving: 1,847.48 − 1,498.88 = 348.60 — 47% larger than the 300-month case
   4. Break-even: 6,000 ÷ 348.60 = 17.21 months, rounded up to 18 — earlier than the 300-month case
   5. Interest over the new term: 289,593.37, so the saving is 304,242.36 − 289,593.37 = 14,648.99
   6. Net of the closing costs: 14,648.99 − 6,000 = 8,648.99

   Both columns that a lender would quote look better here: the payment falls further, and the costs come back three months sooner. The saving over the life of the loan is 79% smaller — 14,648.99 against 71,014.97 — because five more years of interest have been added to the end of the debt. After the closing costs, 8,648.99 is what the whole exercise buys. This is the pair of numbers this page exists to put side by side.

3. A half-point drop with 9,000 of closing costs

   1. New loan: 250,000 at 7% ÷ 12 = 0.5833333% a month over 300 months gives a payment of 1,766.95
   2. Monthly saving: 1,847.48 − 1,766.95 = 80.53
   3. Break-even: 9,000 ÷ 80.53 = 111.76 months, rounded up to 112
   4. 112 months is 9.3 years, or 37% of the remaining term
   5. Interest saved: 304,242.36 − 280,083.50 = 24,158.86 — still worth having
   6. Net of the closing costs: 24,158.86 − 9,000 = 15,158.86

   A small drop is not automatically a bad deal, but it is a slow one. The rate still saves 24,158.86 over the term, which is more than the costs by a wide margin — the money is real, it just takes nine years to arrive. Anyone who refinances here and sells in year five has paid 9,000 to save 4,831.80. The smaller the drop, the more the answer depends on staying put.

Closing costs are an input, not an estimate. This page does not know what an appraisal, a title search, an origination fee or recording charges cost where you are, and it does not know which of them the lender is waiving; add them up from the Loan Estimate before using this calculator, because a break-even month is only as good as that figure. The balance is treated as the amount it takes to clear the old loan, so any prepayment penalty, accrued interest or unpaid escrow on the old loan has to be added to the costs first. A cash-out refinance — borrowing more than the old balance — is not modelled; neither is shortening the term to less than the months remaining, which raises the payment and therefore produces no monthly saving for this page to report. Nothing here accounts for the time value of money: the break-even month treats a dollar saved in month 26 as equal to a dollar of closing costs paid in month zero, and it is not, which makes a long break-even slightly worse than it looks. Escrow items, taxes and insurance are assumed unchanged, and a change in what the lender collects each month will move the payment without moving anything this page measures. The rate is assumed fixed on both loans, and you are assumed to keep the new loan until it is repaid. Amounts carry no currency symbol.

How long does refinancing take to pay for itself?

Divide the closing costs by the monthly saving and round up. On 250,000 refinanced from 7.5% to 6% over the same 300 months with 6,000 of costs, the saving is 236.73 a month, so the break-even is in the 26th month. On a half-point drop with 9,000 of costs it is the 112th month — over nine years. If you expect to sell or refinance again before that month, the refinance does not pay for itself.

Why does a longer new term save more each month but less overall?

Because the payment falls as the term lengthens, while the interest added at the end rises faster than the rate drop removes it. On the default loan, going from 300 months to 360 at the same 6% lifts the monthly saving from 236.73 to 348.60, and cuts the interest saved over the life of the loan from 71,014.97 to 14,648.99 — 79% less. The monthly figure improves because the debt now runs five years longer.

What counts as closing costs?

Everything charged to arrange the new loan: application and underwriting fees, the appraisal, the title search and title insurance, the origination fee, recording and transfer charges, and any points paid to buy the rate down. Add them all up and enter the total. This page does not estimate them, because they vary too much by lender and by location for an estimate to be worth anything.

Is it worth refinancing for a small rate drop?

It can be, if you stay long enough. Half a point with 9,000 of closing costs still saves 24,158.86 over a 300-month term — the problem is that it takes 112 months to recover the 9,000, and someone who moves in year five has paid 9,000 to save 4,831.80. Small drops are not bad arithmetic; they are arithmetic that requires you to stay.

Does a lower payment always mean a better deal?

No, and this is the mistake the page is built to prevent. The 360-month refinance above has the lowest payment of the three cases and the smallest saving over the life of the loan. A lower payment buys lower cash flow, which is a real benefit if the current payment is a strain — but it is not the same thing as paying less, and the two answers come from different columns here.

• 12 CFR 1026.43 — Minimum standards for transactions secured by a dwelling: the repayment-ability rules that a refinance of a home loan has to satisfy — Electronic Code of Federal Regulations, Office of the Federal Register (United States)
• 12 CFR 1026.20 — Disclosure requirements regarding post-consummation events: what must be disclosed when a refinancing pays off the old loan and starts a new one — Electronic Code of Federal Regulations, Office of the Federal Register (United States)